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The Poverty Penalty and Microcredit

Author

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  • Begoña Gutiérrez-Nieto

    (University of Zaragoza)

  • Carlos Serrano-Cinca

    (University of Zaragoza)

  • Beatriz Cuéllar-Fernández

    (University of Zaragoza)

  • Yolanda Fuertes-Callén

    (University of Zaragoza)

Abstract

A poverty penalty arises when the poor pay more than the non-poor to access goods and services. An example is the cost to access credit. Microfinance Institutions (MFIs) usually explain their high interest rates on the grounds of the high risk involved in microcredit, the high fixed cost associated with small loans and the high financial expenses borne by MFIs due to difficulties in deposit collection. The paper finds that a poverty penalty exists. After identifying drivers of the poverty penalty in a sample of MFIs from 17 countries, this paper focuses on the Colombian case. Operating costs is the most important factor explaining effective interest rates. Other factors, such as risk, cost of funds, or profitability, are relevant in some regions. This paper encourages transparent pricing as a keystone for ethics in these entities.

Suggested Citation

  • Begoña Gutiérrez-Nieto & Carlos Serrano-Cinca & Beatriz Cuéllar-Fernández & Yolanda Fuertes-Callén, 2017. "The Poverty Penalty and Microcredit," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 455-475, September.
    • Handle: RePEc:spr:soinre:v:133:y:2017:i:2:d:10.1007_s11205-016-1368-4
    DOI: 10.1007/s11205-016-1368-4
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    Cited by:

    1. Amvella Motaze, Serge Patrick, 2022. "The determinants of the lending interest rate in a cost-based approach: Theoretical model and empirical analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 36-51.
    2. Djibril Faye & Zaka Ratsimalahelo, 2022. "Dynamic analysis of the interest rate determinant in microfinance institutions," Working Papers 2022-09, CRESE.
    3. Eduardo Polloni-Silva & Naijela da Costa & Herick Fernando Moralles & Mario Sacomano Neto, 2021. "Does Financial Inclusion Diminish Poverty and Inequality? A Panel Data Analysis for Latin American Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 158(3), pages 889-925, December.
    4. Maude Pugliese & Céline Le Bourdais & Shelley Clark, 2021. "Credit Card Debt and the Provision of Financial Support to Kin in the US," Journal of Family and Economic Issues, Springer, vol. 42(4), pages 616-632, December.
    5. Dilruba Khanam & Syeda Sonia Parvin & Muhammad Mohiuddin & Asadul Hoque & Zhan Su, 2018. "Financial Sustainability of Non-Governmental Microfinance Institutions (MFIs): A Cost-Efficiency Analysis of BRAC, ASA, and PROSHIKA from Bangladesh," Review of Economics & Finance, Better Advances Press, Canada, vol. 12, pages 43-56, May.
    6. Colin Campbell & Maude Pugliese, 2022. "Credit Cards and the Receipt of Financial Assistance from Friends and Family," Journal of Family and Economic Issues, Springer, vol. 43(1), pages 153-168, March.
    7. Christine M. Sauer & Thomas Reardon & Nicole M. Mason, 2023. "The poor do not pay more: Evidence from Tanzanian consumer food expenditures controlling for the food environment," Agricultural Economics, International Association of Agricultural Economists, vol. 54(5), pages 638-661, September.
    8. NGONYANI, Danstun, 2022. "Financial Inclusion In Developing Countries. A Review Of The Literature On The Costs And Implications," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 26(1), pages 54-77, March.

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